Symantec Makes Huge Play for Cybersecurity Dominance with Acquisition of Blue Coat

Less than a month after Bain Capital announced it was taking Blue Coat public, we learn that Symantec (SYMC) has shelled out $4.65 billion for the company in the hopes of creating a company that can dominate the enterprise security market. That number is almost double the $2.4 billion that Bain paid for Blue Coat just last year, but on par with what analysts expected Blue Coat to receive from the abandoned IPO.

The deal holds a lot of promise for Symantec, which has seen disappointing financials recently. In both quarterly reports this year, the company reported a 2 percent decline in year over year revenue, and its stock has dropped approximately 27 percent over the last year.

In contrast, Blue Coat has reported a 17 percent growth, despite a $232 million net loss on $598 million in revenue, as reported by Fortune. Blue Coat attributes much of that loss to its active M&A activity in the year since Bain took over, namely its acquisitions of Perspecsys and Elastica. The investment group Silver Lake, which invested $500 million in Symantec earlier this year, is matching that investment in the new combined company. Similarly, Bain will reinvest $750 million of its proceeds off the deal into the new venture.

This is a big move for the cybersecurity sector, and for Symantec, in particular. The two companies have very little overlap, with Symantec’s primary focus on on-premises security and Blue Coat’s on web and cloud-based solutions. Together, they’ll be a juggernaut in enterprise security solutions. This is a sector Symantec has been trying to establish a firm foothold in as sales in its consumer business, through its Norton anti-virus line, begin to slow amid a slew of anti-virus software vendors entering the market. With the Blue Coat acquisition, 62 percent of Symantec’s revenues will come from enterprise solutions.

But there are some significant questions surrounding this deal. In a world of agile, nimble startups and constantly evolving technology, will the new security giant be positioned to compete with speed and flexibility? The lack of product overlap combined with the expected $150 million in cost synergies may allow the company to build its portfolio while cutting costs, but only time will tell if it will be able to innovate with the rapidity that this market demands.

Perhaps the bigger question many security experts are grappling with is the potential for conflict of interest. Symantec provides digital security certificates, and Blue Coat provides man-in-the-middle SSL inspection technologies. The new company, therefore, will simultaneously issue and verify security certificates that will be automatically trusted by connected devices.

The acquisition also gives Symantec a gigantic repository of security data from the combined companies. In a conference call with analysts, Ajei Gopal, Symantec’s interim president and COO, says Symantec collects and analyzes security data from more than 175 million endpoints protected through Symantec Endpoint Protection and over 2 billion emails scanned per day through Symantec’s Email Cloud. For its part, Blue Coat analyzes data from more than 1.2 billion Web requests that are secured each day by way of its secure Web gateway. Additionally, Blue Coat protects and monitors more than 12,000 cloud applications through its cloud access security broker (CASB) technology. Having control of such a huge repository of security data will undoubtedly help Symantec be among the first to identify and address emerging threats.

The acquisition is scheduled to close in Q3 of this year. Greg Clark, CEO of Blue Coat, will be appointed CEO of Symantec and join the Symantec Board upon closing of the transaction. David Humphrey, a Managing Director of Bain Capital, will also join the Symantec Board.